GVK Hancock, Aurizon in rail, port deal

Aurizon chief executive Lance Hockridge said the rail corridor would remain an open access regime, allowing other key players in the Galilee Basin such as Adani and Clive Palmer’s Waratah Coal to use the line.
Photo: Glenn Hunt

Queensland’s faltering coal industry has received a boost after rail operator
Aurizon
and India’s
GVK Hancock Coal
signed a $6 billion ports and rail deal to open up the frontier Galilee Basin.

The tentative deal, which is non-binding, could herald the next upsurge in Queensland’s resources boom if plans to build a rail line from the Galilee Basin,which is 500 kilometres from the coast, to the Abbot Point coal terminal in North Queensland go ahead.

The rail corridor would not be ­exclusive to GVK Hancock, allowing other key miners in the Galilee Basin such as Indian giant Adani and
Clive Palmer
’s Waratah Coal to use the line.

But Mr Palmer, who is planning his own $8 billion China First project in the Galilee Basin, said he did not believe the new rail deal would be an open access regime .

“Effectively they are giving one company a monopoly," Mr Palmer told The Australian Financial Review. “There is no option for an alternative railway in the GVK corridor, only theirs."

Under the deal, Aurizon will acquire a 51 per cent interest in Hancock Coal Infrastructure, which owns GVK Hancock’s rail and port projects, and would invest in the port and rail link, which hopes to export up to 60 million tonnes of coal a year.

It would be the first port project for Aurizon, which has to date only built and operated rail infrastructure.

The group has been keen to expand into ports so it can obtain greater control over the pit-to-port supply chain.

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Aurizon chief executive
Lance Hockridge
would not say how much the rail company – formerly known as QR National – invested in the deal, but he said the total value of the GVK Hancock port and mine was about $6 billion.

Queensland Deputy Premier
Jeff Seeney
welcomed the deal, calling on other companies proposing coal and rail projects in the Galilee Basin to work together.

There is still uncertainty about whether all the proposed projects in the Galilee Basin will get off the ground given global uncertainty and the falling coal price.

Both GVK Hancock’s north-south rail project and Aurizon’s east-west proposal have previously been declared significant projects by the Queensland Co-ordinator-General.

The decision by GVK Hancock to work with Aurizon to develop infrastructure in the Galilee is a sign of how tough the operating environment has become for mining companies in the past few years.

Miners have become more willing to consider joint development as coal prices have fallen, making it more difficult to finance infrastructure projects on their own.

The
BHP Mitsubishi Alliance
last week agreed to renew Aurizon’s contracts to haul all its existing coal production in Queensland, surprising some industry observers who had expected the miner to bring some of the haulage operations in-house.

GVK Hancock managing director Dr GVK Reddy said the economic downturn was a good time to invest to ensure the companies were ready for the next surge in coal prices.

GVK Hancock has received state and federal approval for its Alpha coal project, and has two other coal mines (Kevin’s Corner and Alpha West) in the pipeline. “There is no better time to build than when the market is low," Mr Reddy said. “We can have the infrastructure up and running by the time the market picks up again.

“I see this as a hug e win-win, not only for our companies but for the state of Queensland."

Although Aurizon is still in talks with other coal producers, such as
Adani
, over the development of rail infrastructure and haulage services in the Galilee Basin, the tentative deal with GVK means it now appears to be the most likely joint rail project to proceed. Mr Hockridge said the non-binding deal with GVK Hancock would help open up the Galilee Basin.

“This is an extraordinarily important milestone with respect to the future development of coal in the Galilee Basin in Queensland," he said.

“We need an effective rail and port solution to open up the Galilee Basin and the development of the northern Bowen Basin."

Mr Seeney said it was up to commercial parties to determine how many projects proceeded in the Galilee Basin, but stressed the Queensland government was keen to develop the region which is expected to deliver millions of dollars of royalties for state coffers.

“The development of coal in the ­Galilee Basin will be critically important for generations of Queenslanders to come and we will continue to work together to make it a reality," he said.

Analysts said that while the success of the deal would depend on a rebound in thermal coal prices, it showed that Aurizon was likely to be involved in any rail development in the Galilee that goes ahead. “Aurizon’s in a better position than we thought," said Commonwealth Bank analyst Matthew Crowe.

Aurizon has been examining building its own multi-user rail line in the Galilee, which is estimated to contain some 14 billion tonnes of coal, and linking it up with an existing line that runs through Collinsville to Abbot Point.

Aurizon is understood to be confident that coal prices will rebound over the long term, and expects there will be demand from miners for the open access rail infrastructure it would build with GVK. The rail project will only go ahead if Aurizon can secure take-or-pay contracts from miners other than GVK to use the rail infrastructure, which is expected to take at least a year.